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Netflix's subscriber gains dazzle in Q3

Most of the analysts with a bullish stance raise share price targets as firm soothes doubts about its prospects

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Netflix might add more than 25 million paid global subscribers again in 2019 and could become free cash flow positive in 2021, says Morgan Stanley analyst Benjamin Swinburne.

Singapore

NETFLIX INC analysts predict further growth next year for the world's largest paid online TV network after it added more subscribers than expected in the third quarter.

Most of the analysts with a bullish stance raised their share price targets as the 21-year-old company soothed doubts about its global prospects after issuing an upbeat outlook for the current three months with plans to add a record number of customers this year.

Keybanc was less optimistic on the upside, noting that margin expansion and investment efficiency aren't exceeding expectations. The stock soared 11 per cent in after-hours trading.

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Here's what analysts are saying about the results.

Morgan Stanley, Benjamin Swinburne: Netflix is likely to see further growth in 2019 amid its successful expansion into new genres and growth in new geographies, analysts including Mr Swinburne wrote in a report.

The company has "consistently reinvested its near-term success into deepening its competitive moat," which has allowed it to find success in widely diverse markets around the world. Netflix might add more than 25 million paid global subscribers again in 2019 and could become free cash flow positive in 2021.

Morgan Stanley raised the price target to US$475 from US$450, just a day after cutting it from US$480 before the earnings. The broker maintained its "overweight" rating.

RBC, Mark Mahaney: "Long-term fundamental trends remain very, very, very much intact," Mr Mahaney wrote in a report increasing the price target by US$10 to US$450, keeping the "outperform" rating. Netflix is about as close to an "open-ended growth" story as you can find in today's market, he added.

Not only is the company's consumer value proposition "compelling", global subscriber additions and streaming revenue are "accelerating", and it has pricing power and expanding corporate margins, the analyst said.

KeyBanc, Andy Hargreaves: "Improving investment efficiency or significant ancillary opportunities" are required for Netflix's stock to rise meaningfully from current levels, Mr Hargreaves said in a report, cutting recommendation to "sector weight" from a previous "overweight".

While the analysts continue to view Netflix's strategic positioning favourably, they do not see either happening over the next year. Shares could reach fair value at US$377, the report said.

Stifel, Scott Devitt: Expects to get more granularity on the company's 2019 expense plans by line item next quarter, while the company will see easier expense comparisons in 2019 given the push toward self-produced content and content-specific marketing ramp-up in 2018.

The broker forecasts steady domestic growth and accelerating international momentum will help attract 29 million clients also next year. It kept its "buy" rating, raising the price target to US$474 from US$395. BLOOMBERG